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Seaport Global Securities on Friday adjusted their rating on shares of Discover Financial (NYSE:DFS) from “buy” to “neutral.” This revision follows Discover Financial's disclosure of February 2024 credit card trends that revealed higher-than-expected charge-off rates.
Discover Financial reported a slight decline in delinquency rates in February, consistent with seasonal expectations. The month-over-month decrease was 1 basis point, resulting in a delinquency rate of 4.01%, roughly in line with the historical average decrease of 3 basis points. Compared to the same month last year, delinquencies increased by 127 basis points, a slight improvement from the increases observed in December and January.
However, the depreciation rate in February was 5.86%, an increase of 63 basis points from the previous month and 246 basis points from the same month last year. This increase suggests that the first-quarter charge-off rate may be higher than the consensus estimate of 5.40%. Seaport Global expects depreciation rates to peak in mid-2024, then stabilize for the remainder of the period and potentially decline in 2025.
Growth in Discover Financial's credit card portfolio also slowed, with year-over-year growth of 11.5% in February, down from 12.2% in January and well below the February 2023 peak of 22.6%. The year-on-year growth rate for Q1 2024 is 8.8%.
Seaport Global's downgrade also reflects the impending acquisition of Discover Financial by Capital One, which also has a neutral rating. The company clarified that the rating change is not due to a loss of confidence in the completion of the transaction, which is expected to occur in late 2024 or early 2025.
Investment Pro Insights
Seaport Global Securities expresses concerns over Discover Financial (NYSE:DFS) credit card trends. investment professional The data provides additional context for investors. The company has a strong market capitalization of $30.87 billion and a price-to-earnings ratio (P/E) of 11.01, reflecting its price-to-earnings ratio. More specifically, the trailing-twelve-month adjusted P/E ratio as of Q4 2023 is 10.45. These valuations suggest that Discover Financial's stock may be trading at a reasonable price relative to its earnings.
Moreover, the company's gross profit margin for the same period was an outstandingly high 93.82%, indicating high profitability on revenue of $9.842 billion. This financial health is further highlighted by his strong operating margin of 40.21%, which demonstrates the efficiency of our core business operations.
Investors may also be interested in Discover Financial's dividend track record.according to investment pro tips, the company has not only maintained its dividend for 18 consecutive years, but also increased it for 13 consecutive years, demonstrating its commitment to returning value to shareholders. Moreover, the company is trading near its 52-week high, with its price being 96.98% of this all-time high, and has experienced significant price appreciation over the past six months, with a total return of 39.91%. ing.
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